Posts tagged ‘Death Spiral State’

Young whippersnappers are going Galt

Most young people value experiences much more than they value property. They would rather travel regularly or buy the newest iPhone and iPad every year over paying a mortgage. To them a mortgage means they are tied down and less free to make decisions. Gen Y’ers love their freedom and do not want to be strapped down by a mortgage. Many of their contemporaries may tell them they could buy a house for what they are paying in rent. By renting, however, they can leave their job and move to another city on a whim. They can decide to save up and work hard so they can take a few months off to travel. They can quit their job to start their own company. All of these are more possible by not owning a home and having the commitment of a mortgage. We are talking about a generation who has shown they value freedom of work hours and time off more than their salary.
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Older generations need to recognize younger generations may have a better idea of what happiness means than they ever did.

Why Young Adults Don’t Want Your House

The ill effects of taxation — the “distortions” — depend on the total, marginal rate including transfers. If I earn an extra dollar, how much more stuff do I get, or how much more of someone else’s services can I receive? That calculation has to include all taxes, federal, payroll, state, local, sales, excise, etc. and phaseouts.

And, if you receive a benefit from the government that phases out with income, so every dollar of income above (say) $30,000 reduces your benefit by 50 cents, then you face a 50 percent marginal tax rate even if you pay no “taxes” at all. Taxes and benefits — both in level and on the margin — need to be considered together.

Taxes and cliffs

Thinking about buying a house? Or a municipal bond? Be careful where you put your capital. Don’t put it in a state at high risk of a fiscal tailspin.

Eleven states make our list of danger spots for investors. They can look forward to a rising tax burden, deteriorating state finances and an exodus of employers. The list includes California, New York, Illinois and Ohio, along with some smaller states like New Mexico and Hawaii.

If your career takes you to Los Angeles or Chicago, don’t buy a house. Rent.

If you have money in municipal bonds, clean up the portfolio. Sell holdings from the sick states and reinvest where you’re less likely to get clipped. Nebraska and Virginia are unlikely to give their bondholders a Greek haircut. California and New York are comparatively risky.

Do You Live In A Death Spiral State? Don’t buy a house in a state where private sector workers are outnumbered by folks dependent on government.

Or, as a friend said about young people:

I only wish I’d known “then” what they do now!

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